Update on electronic notices of assessments

As we have previously reported, the government announced in the 2021 federal budget, followed by draft legislation released on February 4, 2022, that it would be providing the CRA with the ability to send certain Notices of Assessments (“NOAs”) electronically without the taxpayer having to authorize the CRA to do so (“NOA proposal”).  See our February Tax Blog and our September 21, 2021, news item “Budget 2021 electronic notices of assessment proposal”, for further background.

Subsection 150.1(4.1) was the main provision dealing with the NOA proposal in the February 4, 2022, draft legislation. It provided the CRA with the ability to send NOAs electronically to the individual, or to the filer of the individual’s tax return, without the taxpayer having to authorize the CRA to do so. This would have been effective beginning January 1, 2023.

The draft legislation released by Finance Canada on August 9, 2022, includes significant changes to subsection 150.1(4.1).  From our initial read of the latest version, it appears that the provision is no longer addressing the Budget 2021 NOA proposal but, instead, is allowing the Minister of National Revenue to provide an NOA electronically to an individual who filed their personal income tax return electronically and has authorized that notices or other communications may be made available in this manner.  In particular, references to providing the NOA to the filer have been removed. We have asked the CRA and Finance Canada for more details on the government’s plans and we will provide an update as new information becomes available. 

Revised Legislation – Mandatory Disclosure Rules 

On February 4, 2022, Finance Canada released proposed mandatory disclosure rules, which would require more detailed reporting of certain transactions.  These proposals were organized in three components that would:

  • Expand the current rules for reportable transactions
  • Introduce a new requirement to report notifiable transactions 
  • Add a new requirement for specified corporations to report uncertain tax treatments (UTT)

The Joint Committee on Taxation of the Canadian Bar Association and CPA Canada (the “Joint Committee”), made submissions in response to the government’s consultation on the February 4, 2022, mandatory disclosure rules.  In addition, CPA Canada made a submission on the uncertain tax treatments proposals. For a detailed summary of these submissions, please see our May 2022 tax blog.

Included in Finance Canada’s August 9, 2022, release of revised and new legislation were revisions to the mandatory disclosure rules.  Some notable revisions include:

  • Deferral of the application date of the reportable transaction, notifiable transaction and UTT rules by one year – generally, the reportable transaction and notifiable transaction rules will apply to transactions entered into after 2022 and the UTT rules will apply to taxation years beginning after 2022.
  • Narrowing and clarifying the confidential and contractual protection hallmarks of the reportable transaction rules so that bona fide commercial transactions are not impacted. The Joint Committee has raised concerns as to whether these changes will work effectively. 
  • Lengthening the re-assessment period for reportable transactions, notifiable transactions and UTTs to four years from three years for taxpayers that are mutual fund trusts or corporations that are not Canadian-controlled private corporations to align with subsection 152(3.1). Under the original draft, a three-year period would apply to all taxpayers based on the date the required information return was filed. The assessment period is not limited where a return is not filed. 
  • Alleviating multiple reporting obligations by deeming each employee of an employer to have filed an information return with respect to a notifiable transaction where the employer has filed the required return.  Similarly, for partnerships, partners will be deemed to have filed the return where the partnership has filed. Employees and partners will also not be subject to any related late filing penalties provided proposed subsection 237.4(5) applies. Note that it appears that a similar rule was not included for reportable transactions despite the elimination of subsection 237.3(4).
  • Clarification that reporting obligations will not apply to banks, insurance companies, and credit unions providing secondary or ancillary financial services.  However, this exemption does not apply where the financial institution knows that the relevant transaction is a notifiable transaction. Again, a similar rule does not appear to apply for reportable transactions. 
  • Clarification that persons who offer clerical or secretarial services with respect to the planning are not required to file information returns (this exception is available for both notifiable transactions and reportable transactions). 
  • Removal of the definition of “solicitor-client privilege” used in the reportable transaction rules (as such, the meaning developed under applicable Canadian case law should be used). 

While some of the issues and concerns raised in the Joint Committee submission have been addressed, others have not.  We will be reviewing the rules in greater detail over the coming weeks and will continue to communicate any new or ongoing issues to the government.

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